SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
___ ACT OF 1934
For the quarterly period ended June 30, 1994
_____________________________________________
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
___ EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________________________
Commission file number 0-873
______________________________________________________
PACIFIC TELECOM, INC.
(Exact name of registrant as specified in its charter)
Washington 91-0644974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
805 Broadway, P.O. Box 9901, Vancouver, Washington 98668 - 8701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (206)696-0983
__________________________
No Change
______________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
___ ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, no par value 39,612,275 shares
(Title of Class) (Outstanding at August 5, 1994)
<PAGE>
PACIFIC TELECOM, INC.
<TABLE>
<CAPTION>
INDEX
_____
PART I FINANCIAL INFORMATION: PAGE NO.
_____________________ ________
<C> <S> <C>
Item 1 - Financial Statements:
Consolidated Balance Sheets -
June 30, 1994 and December 31, 1993 3
Consolidated Statements of Income -
Three and six months ended June 30, 1994 and 1993 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 1994 and 1993 5
Condensed Notes to Consolidated Financial Statements 6 - 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 12
PART II OTHER INFORMATION:
_________________
Item 1 - Legal Proceedings 13
Item 4 - Submission of Matters to a vote of Security Holders 13
Item 6 - Exhibits and Reports on Form 8-K 14
Signature 15
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</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. - Financial Statements
PACIFIC TELECOM, INC.
Consolidated Balance Sheets
(Unaudited)
ASSETS
______
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
___________ ____________
(In thousands)
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 3,263 $ 4,861
Accounts receivable 101,560 99,055
Accounts and notes receivable - affiliates - 2,039
Material and supplies 18,266 15,967
Inventory - North Pacific Cable 64,099 65,753
Other 13,490 32,493
_________ _________
Total current assets 200,678 220,168
Investments 154,851 129,897
Plant in service:
Telecommunications 1,559,049 1,562,021
Other 26,118 17,695
Less accumulated depreciation 774,640 741,061
_________ _________
810,527 838,655
Construction work in progress 26,582 14,523
_________ _________
Net plant 837,109 853,178
Intangible assets 256,111 256,226
Deferred charges 23,013 22,755
_________ _________
Total assets $1,471,762 $1,482,224
_________ _________
_________ _________
LIABILITIES AND CAPITALIZATION
______________________________
Current liabilities:
Currently maturing long-term debt $ 24,030 $ 16,429
Notes payable 23,903 24,903
Accounts payable 49,065 50,330
Income taxes payable 280 -
Accrued liabilities 47,908 49,928
Accrued toll settlements 20,398 17,756
_________ _________
Total current liabilities 165,584 159,346
Long-term debt 410,931 426,669
Deferred income taxes 149,276 153,455
Unamortized investment tax credits 16,114 18,326
Other long-term liabilities 70,274 68,947
Minority interest 15,782 16,770
Shareholders' equity:
Common stock 19,806 19,805
Additional paid-in capital 205,607 205,842
Retained earnings 418,388 413,064
_________ _________
Total shareholders' equity 643,801 638,711
_________ _________
Total liabilities and capitalization $1,471,762 $1,482,224
_________ _________
_________ _________
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
PACIFIC TELECOM, INC.
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
_______________________ _____________________
1994 1993 1994 1993
_______ _______ _______ _______
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenues:
Local network service $ 23,211 $ 19,981 $ 46,195 $ 39,276
Network access service 41,668 44,813 83,397 89,258
Long distance network service 64,974 65,796 125,529 132,150
Private line service 14,369 17,050 29,234 33,665
Sales of cable capacity 352 1,414 2,587 2,480
Other 25,967 24,971 49,386 46,949
_______ _______ _______ _______
Total operating revenues 170,541 174,025 336,328 343,778
_______ _______ _______ _______
Operating expenses:
Plant support 28,316 28,398 55,385 57,782
Depreciation and amortization 26,842 26,268 53,618 52,389
Leased circuits 7,271 8,144 13,216 16,156
Access expense 23,106 24,283 45,593 49,038
Other operating expense 8,951 8,170 17,483 16,291
Cost of cable sales 228 722 1,654 1,294
Customer operations 19,004 17,797 36,606 34,630
Administrative support 18,164 21,936 35,956 41,714
Taxes other than income taxes 3,877 3,758 7,374 7,383
_______ _______ _______ _______
Total operating expenses 135,759 139,476 266,885 276,677
_______ _______ _______ _______
Operating income 34,782 34,549 69,443 67,101
_______ _______ _______ _______
Other income (expense):
Interest expense (8,632) (11,359) (17,917) (22,891)
Interest income 73 128 212 294
Gain on sale of investment 3,166 - 3,166 -
Other (2,491) (3,202) (4,245) (4,974)
_______ _______ _______ _______
Total other income (expense) (7,884) (14,433) (18,784) (27,571)
_______ _______ _______ _______
Income before income taxes 26,898 20,116 50,659 39,530
Income taxes 9,264 6,129 17,225 11,342
_______ _______ _______ _______
Net income $ 17,634 $ 13,987 $ 33,434 $ 28,188
_______ _______ _______ _______
_______ _______ _______ _______
Average number of common shares
outstanding 39,610 39,586 39,609 39,576
_______ _______ _______ _______
_______ _______ _______ _______
Net income per common share $ .44 $ .35 $ .84 $ .71
_______ _______ _______ _______
_______ _______ _______ _______
Cash dividends per common share $ .33 $ .33 $ .66 $ .66
_______ _______ _______ _______
_______ _______ _______ _______
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
PACIFIC TELECOM, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
Six Months Ended
June 30,
______________________
1994 1993
______ ______
(In thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $33,434 $28,188
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 56,995 54,819
Deferred income taxes and investment tax
credits, net (7,328) (4,755)
Gain on sale of investment (3,055) -
(Gains) Losses from unconsolidated entities, net (204) 55
Accounts receivable and other current assets 416 (8,453)
Inventory - North Pacific Cable 1,654 236
Accounts payable and accrued liabilities 3,902 4,051
Other 5,518 (85)
______ ______
Net cash provided by operating activities 91,332 74,056
______ ______
Cash Flows from Investing Activities:
Construction expenditures (45,974) (36,337)
Investments in and advances to affiliates, net (11,971) (6,291)
Proceeds from sales of assets 529 24
______ ______
Net cash used by investing activities (57,416) (42,604)
______ ______
Cash Flows from Financing Activities:
(Decrease) Increase in short-term debt (1,000) 10,936
Proceeds from issuance of long-term debt 5,390 4,512
Dividends paid (26,143) (26,100)
Payments of long-term debt (13,527) (23,459)
Purchase of common stock (234) -
______ ______
Net cash used by financing activities (35,514) (34,111)
______ ______
Decrease in Cash and Temporary Cash Investments (1,598) (2,659)
Cash and Temporary Cash Investments at Beginning
of Period 4,861 9,735
______ ______
Cash and Temporary Cash Investments at End of Period $ 3,263 $ 7,076
______ ______
______ ______
Supplemental Disclosures of Cash Flow Information:
Cash paid during the six months ended June 30 for:
Interest $19,655 $24,056
Income Taxes $21,165 $20,817
Noncash Investing and Financing Activities:
Common stock issued for employee benefits $ - $ 971
Common stock received as consideration in
sale of subsidiaries $16,564 $ -
Unrealized loss on securities available-for-sale $ 1,967 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
1. The consolidated financial statements include all normal adjustments which,
in the opinion of management, are necessary to present fairly the
consolidated financial position at June 30, 1994, and the consolidated
results of operations for the three and six months ended June 30, 1994 and
1993 and cash flows for the six months ended June 30, 1994 and 1993. These
consolidated financial statements should be read in conjunction with the
financial statements and related notes incorporated in the latest annual
report filed on Form 10-K of Pacific Telecom, Inc. (Company). The
consolidated results of operations presented herein are not necessarily
indicative of the results to be expected for the year. The 1993
consolidated financial statements reflect certain reclassifications to
conform to the current year presentations.
2. At June 30, 1994, approximately 87 percent of the Company's outstanding
common stock was owned by PacifiCorp Holdings, Inc. (Holdings), a wholly-
owned subsidiary of PacifiCorp.
3. Certain loan agreements contain provisions restricting the payment of cash
dividends. Retained earnings of approximately $203 million were available
for dividends and other distributions at June 30, 1994.
The Company's ratio of earnings to fixed charges for the six months ended
June 30, 1994, calculated in accordance with Item 503 of Regulation S-K
under the Securities Exchange Act of 1934, was 3.0 to 1.0.
4. The Company's effective combined state and federal income tax rates were
34.0 percent and 28.7 percent for the six months ended June 30, 1994 and
1993, respectively. The difference between taxes calculated at the
statutory federal tax rates and the effective combined rates for 1994 and
1993 is reconciled as follows:
<TABLE>
<CAPTION>
1994 1993
____ ____
<S> <C> <C>
Federal statutory rate 35.0% 34.0%
State income taxes, net of federal benefit 3.3 4.3
Amortization of investment tax credits (4.3) (6.1)
Amortization of excess deferred income taxes (1.9) (4.1)
Amortization of excess cost 1.8 2.3
Other .1 (1.7)
____ ____
Effective tax rate 34.0% 28.7%
____ ____
____ ____
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
_______________________ ____________________
1994 1993 1994 1993
_______ ______ _______ ______
(In thousands)
<S> <C> <C> <C> <C>
Federal income taxes $ 7,919 $ 4,611 $14,692 $ 8,594
State income taxes 1,345 1,518 2,533 2,748
______ ______ ______ ______
$ 9,264 $ 6,129 $17,225 $11,342
______ ______ ______ ______
______ ______ ______ ______
Income taxes currently payable $12,801 $10,026 $23,759 $16,089
Deferred income taxes (2,408) (2,649) (4,279) (2,257)
Amortization of deferred
investment tax credits (1,129) (1,248) (2,255) (2,490)
______ ______ ______ ______
$ 9,264 $ 6,129 $17,225 $11,342
______ ______ ______ ______
______ ______ ______ ______
</TABLE>
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<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
5. Investments include $11.2 million of construction costs, $5.5 million of
which was added during the first and second quarter of 1994, relating to
upgrading facilities of telephone exchanges in Colorado that the Company
has agreed to purchase from U.S. WEST Communications, Inc. (USWC). (See
Part I, Item 1, "Business - Telecommunications operations - Local
Exchange Companies" on page 5 of the Annual Report on Form 10-K for the
year ended December 31, 1993 for additional information concerning the
transaction and construction contract.) If the transaction with USWC
does not close, USWC is required to reimburse the Company for all of the
Company's expenditures under the construction contract plus interest.
6. On April 29, 1994, the Company completed the sale of PTI Harbor Bay, Inc.
and Upsouth Corporation to IntelCom Group, Inc. (IntelCom) (AMEX:ITR) for
1,183,147 shares of IntelCom common stock and $.2 million in cash. The
Company plans to sell all of its IntelCom shares through a public or
private offering. Based on the trading value for IntelCom stock at
April 29, 1994, the Company recognized proceeds on the sale of the
subsidiaries of $16.8 million (including $.2 million in cash) and an
after-tax gain of $1.6 million, net of anticipated selling commissions
and other expenses. Any additional gain or loss realized will be
dependent on IntelCom's stock price when the shares are sold. At
June 30, 1994, the closing price of Intelcom stock was lower than the
original recorded value and an unrealized net loss of $2.0 million was
recorded directly to retained earnings in accordance with Statement of
Financial Accounting Standards No. 115. The trading range of IntelCom
stock since June 30, 1994, has been from $11 1/4 to $14 1/4 per share.
The net assets of PTI Harbor Bay, Inc. and Upsouth Corporation prior to
the sale were classified in other current assets. The IntelCom share
value is included in investments.
- 7 -
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended June 30
__________________________
Results of Operations
_____________________
The Company's net income applicable to common stock for the second quarter
of 1994 was $17.6 million or $.44 per share compared to net income of $14.0
million or $.35 per share for the second quarter of 1993. Operating income
increased one percent or $.2 million in the second quarter of 1994.
Excluding the effects of lower out-of-period revenue adjustments, the
Company experienced growth in operating income of $1.3 million, or four
percent over the prior period second quarter. This increase was
attributable mainly to higher cellular revenue, lower leased circuits
expense, lower corporate support and benefit costs and LEC access line
growth. Partially offsetting these items were higher LEC depreciation and
lower sales of cable capacity. In addition, lower interest expense, caused
mainly by lower borrowing levels, a gain on the sale of two wholly-owned
subsidiaries and a valuation adjustment to a lease liability contributed to
the improvement in net income.
Operating revenues for the second quarter of 1994 were $170.5 million, a
decrease of two percent from $174.0 million for the second quarter of 1993,
primarily reflecting a reduction in recoverable expenses. LEC extended
calling area service revenues of $2.1 million and a $1.0 million revenue
effect of access line growth combined to contribute most of the $3.2 million
increase in local network service revenue. The implementation of extended
calling area service routes shift revenues from network access, long
distance and other revenue to local service revenue. Network access service
revenue declined by $3.1 million, with $1.8 million resulting from the
effect of LEC extended calling area services and $1.8 million due to lower
out-of-period revenue adjustments. Long distance network service revenue
was down $.8 million from the second quarter of the prior year primarily
due to the $2.3 million decline in interstate access revenue that is a
direct recovery of access expense. The Anchorage Telephone Utility (ATU)
exited the National Exchange Carrier Association (NECA) traffic sensitive
pools, which resulted in a reduction in access charge expenses. Partially
offsetting this decline was a $1.1 million improvement in intrastate
revenue relating to increased intrastate billed minutes. Private line
service revenue decreased $2.7 million as a result of the Company exiting
certain noncore business activities. Lower revenues from cable sales of $.6
million and backhaul sales of $.5 million decreased sales of cable capacity.
Other revenue increased $1.0 million, including increased cellular retail
and foreign roamer revenues of $2.6 million relating to customer growth and
acquisitions which was partially offset by decreased cable maintenance and
restoration relating to the 1993 cable outage.
On May 24, 1994, the Federal Communications Commission (FCC) adopted a final
order relating to the restructuring of the Alaska interstate long distance
marketplace. The Company's wholly-owned subsidiary, Alascom, Inc., filed a
petition for review of the order with the United States Court of Appeals for
the District of Columbia, but the Company has initiated implementation of
its requirements under the order, which became effective on June 27, 1994.
In addition, on July 8, 1994 Alascom received the first of two $75 million
transitional payments from AT&T. Pursuant to the FCC order, this amount was
used to reduce Alascom's ratebase, which will result in lower revenues and
depreciation expense in future periods. (See Part I, Item 1, "Business-
Telecommunications Operations-Alaska Market Restructuring" on page 7 of the
Annual Report on Form 10-K for the year ended December 31, 1993 for
additional information.)
- 8 -
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operating expenses for the second quarter of 1994 were $135.8 million, a
decrease of $3.7 million compared to the second quarter of 1993. Leased
circuits expense decreased $.9 million mainly due to the noncore business
activities that were sold. Depreciation expense was higher by $.6 million
relating to LEC depreciation rate increases of $1.3 million and was
countered in part by lower depreciation of $.8 million resulting from the
sale of noncore subsidiaries. Access expense decreased $1.2 million due to
the $2.3 million effect of the ATU exit from the NECA traffic sensitive
pools that, as described above, was offset by a decrease in long distance
network service revenue. Partially offsetting this decrease was an increase
of $.7 million relating to increased facility costs associated with access
services. Cellular customer growth and an increase in the incremental cost
to acquire new customer subscriptions increased customer operations expense
by $.8 million while LEC directory assistance and expense increased customer
operations by $.5 million. Administrative support expense decreased by $3.8
million relating mainly to lower corporate support and employee benefit
costs.
Other expense (net) for the second quarter of 1994 was $7.9 million, a
decrease of $6.6 million from the second quarter of 1993. This decrease was
mainly due to the $3.2 million pre-tax gain on the sale of two wholly-owned
subsidiaries, the $2.7 million decrease in interest expense reflecting lower
debt levels as a result of the payment of debt with proceeds from the sale
of IDB Communications Group, Inc. stock in 1993 and the $.8 million
favorable adjustment to a lease liability. (See Part I, Item 1,"Business-
International Communications" on page 10 of the Annual Report on Form 10-K
for the year ended December 31, 1993 for more information concerning the
payment of debt.) Income taxes increased due to higher taxable income and a
higher federal statutory income tax rate that took effect in 1993.
Six Months Ended June 30
________________________
Results of Operations
_____________________
The Company's net income applicable to common stock for the six months ended
June 30, 1994 was $33.4 million or $.84 per share, an increase of 19%
compared to net income of $28.2 million or $.71 per share for the same
period in 1993. Operating income increased three percent or $2.3 million
for the first six months of 1994. Excluding the effects of lower out-of-
period revenue adjustments, the Company experienced growth in operating
income of $6.1 million, or nine percent, over the first six months of 1994.
This increase was attributable mainly to higher cellular revenue, lower
leased circuits expense, reduced corporate and benefit costs and LEC access
line growth. Partially offsetting these items were higher LEC depreciation
and customer support expenses. In addition, a decline in interest expense
caused mainly by lower borrowing levels, the sale of two wholly-owned
subsidiaries and a valuation adjustment to a lease liability contributed to
the improvement in net income.
Operating revenues for the first six months of 1994 were $336.3 million, a
decrease of two percent from $343.8 million for the same period of 1993
primarily reflecting a reduction in recoverable expenses. LEC extended
calling area service revenues of $4.0 million, access line growth with a
revenue effect of $1.9 million and the revenue effect of a rate increase in
Washington of $.7 million combined to contribute most of the $6.9 million
increase in local network service revenue. Network access service revenue
declined by $5.9 million, with $3.2 million resulting from the effect of LEC
extended calling area services and $2.9 million due to lower out-of-period
revenue adjustments. Long distance network service revenue was down $6.6
million from the first six months of 1994 when compared to the same period
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<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
in the prior year primarily due to the $4.5 million decline in interstate
access revenue due to ATU exiting the NECA traffic sensitive pools that
resulted in a reduction in access expenses. Also reducing long distance
network service revenue were the $2.9 million long lines revenue effect of
reduced expenses and lower LEC long distance revenue of $1.6 million
relating to the implementation of extended calling services. These decreases
were offset in part by increased long lines intrastate revenue of $1.4
million relating to increased billed minutes and interstate revenues of $1.1
million from a higher rate of return. Private line service revenue
decreased $4.4 million mainly as a result of the Company exiting
certain noncore business activities. Other revenue increased $2.4 million,
including increased cellular retail and foreign roamer revenues of $4.7
million relating to customer growth and acquisitions which was partially
offset by decreased cable maintenance and restoration of $.8 million
relating to the 1993 cable outage and lower revenue of $.6 million relating
to the effect of LEC extended calling service revenue.
Operating expenses for the first six months of 1994 were $266.9 million, a
decrease of $9.8 million compared to the first six months of 1993. Plant
support decreased $2.5 million as the decision to exit certain noncore
business activities reduced plant support by $1.5 million and long lines
contract service expenses declined by $.9 million mainly due to various
nonrecurring charges in 1993. Leased circuits declined by $2.9 million of
which $1.0 million related to noncore business activities that were
sold and $1.4 million related to the cable outage in 1993.
Depreciation expense was higher by $1.2 million relating to LEC depreciation
rate increases of $2.6 million and was countered in part by lower
depreciation of $1.7 million resulting from the sale of noncore
subsidiaries. Access expense decreased $3.4 million due to the $4.5 million
effect of the exit of ATU from the NECA traffic sensitive pools that, as
described above, was offset by a decrease in long distance network service
revenue. Partially offsetting this decrease was an increase of $.9 million
relating to increased facility costs associated with access services.
Growth in cellular roaming expense caused most of the $1.2 million increase
in other operating expense. Cellular customer growth and an increase in the
incremental cost to acquire new customer subscriptions increased customer
operations expense by $1.7 million of the $1.9 million increase.
Administrative support expense decreased by $5.8 million relating mainly to
lower corporate support and employee benefit costs of $4.9 million and
diminished activities for other noncore subsidiaries of $.9 million.
Other expense (net) for the first half of 1994 was $18.8 million, a decrease
of $8.8 million from the first half of 1993. This decrease was mainly due
to the $3.2 million pre-tax gain on the sale of two wholly-owned
subsidiaries, the $5.0 million decrease in interest expense reflecting lower
debt levels as a result of the payment of debt with proceeds from the sale
of IDB Communications Group, Inc. stock in 1993 and the $.8 million
favorable adjustment to a lease liability.
Income taxes increased due to higher taxable income, the 1993 adjustment to
adopt Statement of Financial Accounting Standards (SFAS) 109 "Accounting for
Income Taxes" and a higher federal statutory income tax rate that took
effect in 1993.
- 10 -
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Acquisitions
____________
In August 1993, the Company signed a definitive agreement with US WEST
Communications, Inc. (USWC) under which the Company would acquire certain
rural telephone exchange properties in Colorado. (See Part I, Item 1,
"Business - Telecommunications Operations - Local Exchange Companies" on
page 5 of the Annual Report on Form 10-K for the year ended December 31,
1993, for additional information concerning the purchase of the Colorado
properties.) The Colorado Public Utilities Commission order approving the
transaction with conditions became final in June 1994. The comment period
has expired in the Federal Communications Commission (FCC) docket
considering the Company's application for study area and price cap waivers
associated with the transaction. No opposing comments were received, but
issuance of the FCC written order is still pending.
On May 4, 1994, the Company signed definitive purchase agreements to acquire
certain rural telephone exchange properties in Oregon and Washington from
USWC. The properties to be acquired by the Company represent 49 exchanges
that serve approximately 34,100 access lines. Many of these exchanges are
contiguous to or located near other rural exchanges that the Company owns
and operates in these states. The Company will be acquiring assets from
USWC to provide telephone service to these areas at a combined price of
approximately $182 million in cash. The purchase price is subject to
certain adjustments, including adjustments for actual book value of the
assets at closing. The Company will not assume any financial liabilities
from USWC in the transactions. Applications seeking Washington Utilities
and Transportation Commission and Oregon Public Utilities Commission
approvals and FCC study area and price cap waivers were filed in the second
quarter. Completion of the transactions with USWC is dependent on
corporate, regulatory and governmental approvals, receipt of which is
expected to occur prior to the end of 1995.
See Part I, Item 1, "Business - Acquisition Program" on page 18 of the
Annual Report on Form 10-K for the year ended December 31, 1993 for
information on the Company's acquisition strategy.
Liquidity and Capital Resources
_______________________________
During the six months ended June 30, 1994, construction expenditures
amounted to $46.0 million. These expenditures related mainly to network
upgrades and growth in the Company's operations. The Company does not
have any major construction projects underway at the present time. The
construction expenditures were funded using cash from operations. In 1994,
total construction expenditures estimated at $123.8 million and expenditures
for the construction contract with USWC estimated at $28 million are
expected to be funded primarily through cash from operations.
The Company plans to participate as a selling stockholder in a public
offering currently contemplated by IntelCom Group, Inc. (IntelCom) and
expects to sell 1,183,147 shares of IntelCom common stock in this offering
(Note 6). If IntelCom is not able to successfully complete the registration
of the public offering in the near future, the Company will consider a
private placement. Cash proceeds from the sale, net of selling commissions
and other expenses, will be used to help finance the Company's continuing
local exchange acquisition program.
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<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Company has access to funds through its $300 million revolving credit
agreement. At June 30, 1994, the Company had nothing outstanding under the
revolving credit agreement. In addition to providing available funds, the
revolving credit agreement also serves as backup for a $100 million
commercial paper program, under which nothing was outstanding at June 30,
1994. The Company had $20 million outstanding under other banking
arrangements and $3.9 million due to the minority owner of a Company
subsidiary at June 30, 1994. The Company also has a $150 million Series B
Medium-Term Note program, with $74.5 million outstanding at June 30, 1994,
and has received approval from the Rural Telephone Bank authorizing it to
borrow up to $23.5 million in additional REA debt for certain construction
projects. In July 1994, Moody's Investors Service, Inc. (Moody's) lowered
the rating on the Company's Medium-Term Notes from A3 to Baa1. This
reduction is not expected to result in a material increase in the interest
rate on new issuances of the Company's Medium-Term Notes since this
downgrade by Moody's put its rating on a comparable level with Standard and
Poors.
On July 8, 1994, Alascom received the first of two $75 million transitional
payments from AT&T. The Company is treating these payments as a taxable
event in the year received. However, a letter ruling from the IRS will be
sought to clarify the proper tax treatment. The funds have been invested on
a temporary basis and will be redeployed in the Company's local exchange
acquisition program. (See Part I, Item 2, "Acquisition Program" on page 18
of the Annual Report on Form 10-K for the year ended December 31, 1993 for
additional information.)
The Company has an agreement that allows temporary cash advances to or from
its majority shareholder, PacifiCorp Holdings, Inc. (Holdings). Interest
rates on advances from Holdings are based on Holdings' cost of short-term
funds plus 3/8 percent. Interest rates on advances to Holdings are based on
Holdings' cost of short-term funds. At June 30, 1994, the Company had no
outstanding advances to or from Holdings. After the receipt of the
transitional payment from AT&T in July, the Company advanced $55 million to
Holdings. The Company has definitive agreements with USWC to purchase local
telephone properties in Colorado for approximately $207 million and in
Oregon and Washington for approximately $182 million. The Company expects
to fund these acquisitions through the issuance of external debt and
internally generated funds.
Any temporary cash or liquidity requirements during 1994 are expected to be
met through utilization of funds available under the revolving credit
agreement or temporary advances from Holdings. Long-term liquidity
requirements are expected to be met through utilization of funds available
under the revolving credit agreement, the term of which ends in November
1995 and is renewable on an annual basis with the consent of the banks,
temporary advances from Holdings or the issuance of additional Series B
Medium-Term Notes.
- 12 -
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company has learned that a number of class-action complaints have
been filed in federal district court in California by shareholders or
former shareholders of IDB Communications, Inc. (IDB) against IDB and
certain of its directors and officers. Among other matters, these
complaints allege securities laws violations in connection with
certain offerings of IDB stock, including a secondary public offering
of shares of IDB stock by two subsidiaries of the Company in November
1993. Although neither the Company nor any of its subsidiaries has
yet been served with process, the Company understands that its
subsidiary, International Communications Holdings, Inc. (ICH) and its
former subsidiary, PTI Harbor Bay, Inc., were named as defendants in
at least one of the complaints. The Company further understands that
the complaint seeks recision of the transaction or damages in an
unstated amount. Under an agreement between the Company and IDB, IDB
has agreed to indemnify the Company from and against losses, damages
and expenses incurred in connection with matters of the type alleged
in the complaints. While the ultimate resolution of this matter
cannot be predicted with certainty, the Company intends to vigorously
defend any claims arising out of this matter. The Company believes
the disposition of this matter will have no material adverse effect
on the Company's consolidated results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of shareholders on April 29, 1994,
the shareholders elected a board of six directors. Votes cast in
relation to this matter are summarized as follows:
<TABLE>
<CAPTION>
Votes Against Abstentions and
Director For or Withheld Broker Non-votes
__________________ _____ _____________ ________________
<S> <C> <C> <C>
Joyce E. Galleher 37,675,959 23,479 0
Roy M. Huhndorf 37,675,749 23,689 0
Donald L. Mellish 37,676,632 22,806 0
Charles E. Robinson 37,676,549 22,889 0
Sidney R. Snyder 37,676,279 23,159 0
Nancy Wilgenbusch 37,676,481 22,957 0
</TABLE>
The shareholders also approved the 1994 restatement of the long-term
incentive plan. Votes cast in relation to this matter are summarized
as follows:
<TABLE>
<CAPTION>
Votes Against Abstentions and
For or Withheld Broker Non-votes
_____ _____________ ________________
<C> <C> <C>
37,366,312 281,571 51,555
</TABLE>
- 13 -
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Statements re Computation of Ratios
(b) Reports on Form 8-K
On Form 8-K dated May 24, 1994, under Item 5. "Other
Events," the Company reported that the Federal
Communications Commission released a written order
which adopted a modified version of the Final
Recommended Decision proposed last October by the
Federal-State Alaska Joint Board to restructure the
Alaska interstate telecommunications market.
- 14 -
<PAGE>
SIGNATURES
__________
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Pacific Telecom, Inc.
____________________________
(Registrant)
Date: August 11, 1994 /s/James H. Huesgen
____________________________
Executive Vice President and
Chief Financial Officer
- 15 -
<PAGE>
<TABLE> EXHIBIT 12
Pacific Telecom, Inc.
Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in millions)
<CAPTION>
Six
Months
Ended
June 30, Year Ended December 31,
1994 ______________________________________________________
________ 1993 1992 1991 1990 1989
______ ______ ______ ______ ______
<C> <C> <C> <C> <C> <C>
<S>
Earnings, as defined*:
Income from continuing operations
before income taxes $50.7 $ 82.9 $ 99.8 $120.4 $137.5 $104.6
Add:
Fixed charges 25.1 59.5 63.2 67.7 49.2 40.0
Equity losses of less than 50%
owned persons - - 0.9 0.5 0.7 0.1
Minority interest 0.4 0.6 0.1 2.0 4.0 -
____ _____ _____ _____ _____ _____
Total earnings $76.2 $143.0 $164.0 $190.6 $191.4 $144.7
____ _____ _____ _____ _____ _____
____ _____ _____ _____ _____ _____
Fixed charges:
Interest $17.9 $44.3 $52.1 $55.0 $40.1 $30.0
Interest portion of rental expense 7.2 15.2 11.1 12.7 9.1 10.0
____ ____ ____ ____ ____ ____
Total fixed charges $25.1 $59.5 $63.2 $67.7 $49.2 $40.0
____ ____ ____ ____ ____ ____
____ ____ ____ ____ ____ ____
Ratio of earnings to fixed charges 3.0 2.4 2.6 2.8 3.9 3.6
____ ____ ____ ____ ____ ____
____ ____ ____ ____ ____ ____
<FN>
* For the purpose of computing these ratios, "earnings" represents the aggregate of (a) income from continuing
operations before income taxes, (b) fixed charges, (c) equity losses of less than 50% owned persons and (d)
minority interest. Equity losses of less than 50% owned persons are added to income from continuing
operations before income taxes since the Company does not guarantee the debt of such persons. "Fixed
Charges" consist of interest charges and an estimated amount representing the interest portion of rental
expense.
</TABLE>
